Don’t let crowdfunding become crowdscamming «
Crowdfunding allows budding start-up owners, artists and philanthropists to reach beyond their networks of friends and family and raise money for their projects, usually via online portals. One of the largest crowdfunding sites, Kickstarter, says that, since its launch in 2009, 5 million people have pledged $831 million, funding 50,000 creative projects.
Indeed, crowdfunding is become so significant that MarketWatch is offering comprehensive data and pricing on crowd-financed projects .
The crowdfunding most of us are familiar with is donation-based. All types of projects have asked for funding using this model, from a food start-up looking to develop a new line of hot sauces to a children’s choir that wants to travel and perform in New York City.
A brave and sometimes dicey new world. With a donation-based approach, donors don’t own a piece of the project, but often there are rewards for different donation levels. For example: Donate $5 and get a shout-out on the project’s Facebook page; donate $50 and get a hot-sauce sample; or donate $1,000 and have dinner with the product’s creators.
Keep in mind that when you donate to a crowdfunded project, it isn’t necessarily a tax-deductible donation. Only donating to organizations that are registered as 501(c)(3) nonprofits, or to people raising money for a 501(c)(3), may give you the eligibility for a tax write-off.
Sixteen-year-old Paloma Palmer of the San Francisco Bay Area recently spent two weeks in a remote village in Fiji through Rustic Pathways, an organization which, in part, helps to build schools throughout the world. After returning home, Palmer wanted to continue helping.
She turned to Indiegogo, one of the largest crowdfunding sites. “I used Indiegogo as my platform to get my message out there and help raise much-needed money,” says Palmer. “I know these funds are secure and safe and will get put into the right hands.” Palmer’s goal is $3,000, which will enable Rustic Pathways to provide 30 desks and chairs to the Nasivikoso Village School Project in Fiji.
With this model, you are not donating for personal gain. The incentives are fun or helping a cause, such as, in Palmer’s case, providing a desk to a student thousands of miles away. You donate because it is a cause you believe in or involves people you like — or maybe a hot sauce you want to try.
Potential profit and greater risk
Newer to the scene is investment-based crowdfunding, where entrepreneurs launch broader, for-profit business ideas that you may want to invest in. Under a law passed in 2012, the Securities and Exchange Commission is developing rules that will make it easier for small companies to sell shares via crowdfunding.